Juridical Risk? Watch for it in the MF Global Bankruptcy

The bankruptcy of MF Global is in process. Interestingly the Judge in the case could turn insurance on its ear. The executives from MF Global run by John Corzine, bought a D&O policy with about 190 million in coverage limits. The executives are the named insureds on the policy. The judge overseeing the case is indicating that the insurance money should go to the customers who lost millions due to bad executive decisions not the executives. It may seem like the right thing to do as many poor investors lost everything, but if this decision is made it could set a precedent for juridical risk that would be hard to manage. The insurance policy is a contract with consideration between the insurance company and the first named insureds. A ruling that the insurance company is to pay coverage limits direct to customers , breaks the contract. The executives bought the policy to cover them for bad director decisions that trigger legal action, which is the case for MF Global. Though it may be the right thing to do ethically and morally, changing an insurance contract terms and conditions,  post lost , is a scary scenario.  Keep you eye on this one folks.  Until next time be careful out there and know your risks. K

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